Tuesday, October 4, 2016

What is 'The Tax Foundation,' and Why Does It Rank Arizona 21st in Tax Policies?

You may have seen the article in today's Star written by an AZ Republic reporter, Report ranks Arizona better than average for tax policies. According to the article, Arizona is number 21 in the national rankings. Not bad. In fact, that sounds like the kind of thing Governor Ducey might brag about. But the ranking is in a report from the Tax Foundation, meaning it ranks Arizona 21st in the nation for its business-friendly tax policies. As for everyone else, we'll just have to hope some of that business friendliness trickles its way down to us, though the reality is, the decades-long trend toward ever-lower taxes for businesses and the rich has sent the nation's wealth galloping upward, creating income inequality like we haven't seen since the Gilded Age.

The Tax Foundation is a conservative group which advocates for lower taxes, especially for business. Of its four founding members in 1937, two were the chairman and financial vice president of General Motors, and a third was the president of Standard Oil. The group gets Koch Brothers funding through the brothers' labyrinthine network of organizations which launder money by tossing it back and forth until its origin is obscured. It makes sure to air its opinion at ALEC (American Legislative Exchange Council) meetings. In 2011, the Tax Foundation's president spoke to ALEC's Tax and Fiscal Policy Task Force about corporate taxes and international competitiveness, and one of its vice presidents introduced a "Resolution Urging Congress to Cut the Federal Corporate Tax Rate."

Let's break down Arizona's tax rating to see why the Foundation thinks we're above average. The state ranks high—meaning we tax low—when it comes to corporate and income taxes. We're 19th in the nation on both. Our property tax ranking is even better. We're at number 6. We rank 13th in unemployment insurance, meaning we're the 13th friendliest to businesses in that category. For workers who need unemployment insurance, that's not such a good thing.

Where Arizona's ranking with the Foundation tanks is in the area of sales tax. We're 47th in that category, meaning our sales tax rates are far too high for the Foundation's liking. It's not really the tax cutters' fault, though. To lower business and income taxes, our conservative legislature has shifted the burden to the most regressive of all taxes, the sales tax.

A more liberal-leaning group, the Institute on Taxation and Economic Policy, has a different take on Arizona's tax structure. It comes close to agreeing with the Tax Foundation on the ranking of Arizona's combined state and local taxes. ITEP has us the 35th highest, the same as being the 15th lowest—which is in the same relative ballpark as the Tax Foundation's 21st place ranking. But then, instead of focusing on how friendly the tax structure is for business, ITEP looks at how unfriendly it is for the poorest 20% of tax payers. We rank at the fifth worst in the nation in terms of the burden on our lowest income citizens.

[T]he poorest 20 percent of Arizona residents pay significantly more of their income (12.9 percent) in state and local taxes than any other group in the state. For low-income families, Arizona is far from being a low tax state. In fact, only four states tax their poorest residents more heavily than Arizona.

According to ITEP, while the bottom 20 percent pays 12.9 percent of its income on state and local taxes, the top 1 percent pays only 4.7 percent. In a progressive tax world, people in the top income brackets would pay a larger percentage of their income on taxes than those who are barely scraping by. Not so in regressive Arizona.

To which the folks at the Tax Foundation would say, "All right! That's what we're talking about!"